Customer Reviews

Three Billion New Capitalists: The Great Shift of Wealth and Power to the East

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Before writing this review, I reflected carefully on the thoughts of those who say that the author, who is known to me, was wrong about Japan, that he emphasizes the best points of the new competitors (China and India) while neglecting our best points. There is certainly something to what they say, but as one who studies the entire world for our US Government clients, with a special familiarity with Chinese operations in Africa and South America, and a business familiarity with what is happening in India, I have to say that on balance, the author is more correct his critics will admit, and this is a book that we simply cannot ignore.

His most important point is made in one line: America does not have a strategy. America does not have a strategy for winning the global war on terror, it does not have an energy strategy, it does not have an education strategy, it does not have an economic or competitiveness strategy. The government is being run on assertion and ideology rather than evidence and thought--a media cartoon has captured the situation perfectly: as the VP tells the President that we are "turning the corner" the two walls behind them are labeled Incompetence and Fantasy. As a moderate Republican and a trained intelligence professional with two books on the latter topic, I have to say that this book by this author, a Reaganite businessman and senior appointee in the Department of Commerce is right on target. We *are* out of touch with reality, and we do not appreciate, at any level from White House to School House, the tsunami that is about to hit us.

The author makes two important points early on in the books: first, that information is the currency of this age, replacing money, labor, and physical resources; and second, that the best innovation comes from the right mix of sound education across the board, heavy investment in research & development, and a co-located manufacturing bases that can tinker with R&D and have a back and forth effect. America lacks all three of the latter, and is not yet serious about investing in global coverage of all languages, 24/7.

There is a great deal of commonality between this book and Tom Friedman's The World Is Flat: A Brief History of the Twenty-first Century both written and published in the same time frame. Both authors agree that the Internet has put an end to time and space constraints, and both agree that American labor is very much at risk because our basic education is flawed and we have no strategy for demanding continuing education from employers. The author excels at drawing the connection between poor education, "it's been twenty years since anyone at Bell Labs received a Nobel Prize," and the massive increase in outsourcing of knowledge work, not just scut work.

I do have to say, having called Friedman's latest book a massive Op-Ed in my review of that book, that this author is more thoughtful, provides more historical context, and delves into more basic important detail that Friedman--put bluntly, his book is more serious and more valuable than Friedman's, as in this is the meat, where Friedman is the sauce. Prestowitz addresses the core issues of the value of the dollar, the central place of energy, the role of demographics, and the fundamental macro-economic and structural imbalances that will weaken America, that are weakening America, over the passage to of a century of time--this is not a "snap-shot," this is a *deep* look into the soul of America.

Chapter 12, the author's recommendations, is alone worth the price of the book and should be required reading in every comparative economics and national security policy classroom. I won't list these recommendations but will highlight just a couple that struck me as immediately actionable: declaration of energy independence; DoD as a catalyst for socio-economic recovery by taking the lead in energy, education, and intelligence, learning how to wage peace; end to subsidies (the author uncharacteristically fails to note that we can increase government revenues by $500B a year if we not only eliminate subsidies, but stop import-export tax fraud and demand that corporations pay taxes on the profits they declare to their shareholders rather than the falsified and manipulated balance sheets they present to the IRS); join Japan and India to NAFTA--this is an outrageously brilliant idea.

Clyde Prestowitz is one of the most insightful, balanced, *sane* voices on national competitiveness today. He would make an excellent Secretary of Commerce in the transpartisan Administration.

See also (with reviews):
Rogue Nation: American Unilateralism and the Failure of Good Intentions
The Fortune at the Bottom of the Pyramid: Eradicating Poverty Through Profits (Wharton School Publishing Paperbacks)
The Battle for the Soul of Capitalism: How the Financial System Underminded Social Ideals, Damaged Trust in the Markets, Robbed Investors of Trillions - and What to Do About It
The Global Class War: How America's Bipartisan Elite Lost Our Future - and What It Will Take to Win It Back
The Politics of Fortune: A New Agenda For Business Leaders
The Wealth of Networks: How Social Production Transforms Markets and Freedom
Revolutionary Wealth: How it will be created and how it will change our lives
Infinite Wealth: A New World of Collaboration and Abundance in the Knowledge Era
THE SMART NATION ACT: Public Intelligence in the Public Interest

Mr Prestowitz raises alot of the issues regarding the rise of China and its consequences. He writes from the perspective of a former international marketing manager for a US corporation and a former Commerce department official. I take most of the things Mr Prestowitz is commenting on seriously and
I think the tone, while pessimistic, is not over the top.

I am a silicon valley scientist and I find Mr Prestowitz's
perspective valuable and complimentary to my in the trenches view of this. I grew up in the rust belt and watched at close quarters the disappearance of the steel industry and started my career at a DRAM company, which was also vaporized in the early to mid 80s. In the late 90s I had my product line moved to the
far east and the most recent business I am associated with is
seeing counterfeiting and price competition from China.

The parts of Mr Prestowitz's analysis of which I have personal and independent knowledge is almost all correct in my opinion. He correctly lays out the dilemma from the businessman's perspective and he is aware of the key reasons why tech businesses feel compelled to move manufacturing and other things to China and other locations in the far east. He gives you a good feel for the strategies of the Chinese and Indian Governments so that you get a good feeling for the dynamics of this.

However, he goes much further by adding his analysis of the European hand of cards and how they are likely to play it. There is also the issue of the fate of the dollar and the trade deficit which is discussed at some length in several chapters. Much of this discussion does place some numbers out there some of which are new to me.

Mr Prestowitz also discusses the effect of the steep rise of China on the attitudes of other countries and shows that China is already having a substantial effect in people's anticipation of the Chinese rise to the top of world economies.
The effects of the rise on allies such as Australia were surprising to me and I was not aware of some of this. In addition the effects of China on American relations to South America were also a surprise to this reader.

While I dont agree with all of his assessments, I feel he
overestimates European capabilities, for example, his statements are well reasoned and certainly within reasonable
bounds. The book is a very good place to start on these issues.
Based upon my experience with these issues over the last 30 years and with the obvious personal knowlege of the situation that Mr Prestowitz has there is no question that this gentleman has a very solid background to write on these issues.

Back in 1988, Prestowitz wrote "Trading Places" which was about Japan taking over the world. It sure looked that way at the time, Japan had the highest savings and investment rate, it was catching up and leapfrogging past us in many technologies. It had a huge current account surplus. However, shortly after Prestowitz published his book Japan experienced a chronic recession for the next 20 years. It's stock market level has not recovered from the peak of the late 80s.

Now, Prestowits is crying wolf about China and India for a different set of well known reasons. They have an abundant, cheap, and increasingly educated labor force that will accelerate the gutting out of both our manufacturing and research-service sectors.

Everything Prestowitz states is true, well researched, and insightful. Thus, why was he so wrong nearly 20 years ago about the prognostic of Japan vs the U.S.? And, is he likely to be wrong about China and India?

There is a simple reason why Prestowitz is likely to be wrong again. He focuses only on the most positive sides of our international competitors, and the worst ones of ours. Thus, his arguments are highly unbalanced. China and India are formidable competitors, and to some degree they should take over the world. This is just so that the living standards of their citizen reaches something beyond a poor third world level. However, both China and India face extremely challenging hurdles. China is absolutely clueless about efficient allocation of capital. Credit allocation through their banking system is one of the poorest and most corrupt in the world. The percentage of bad loans within these same banks is causing the entire banking sector to be essentially insolvent. India on the other hand suffers from an incredibly high illiteracy rate which exceeds 50% of the population. It has also one of the most byzantine and inefficient government regulatory apparatus. Ordering a new residential phone line in India is more cumbersome and time consuming then starting a whole new business in the U.S. These weak spots of China and India are complete blind spots in Prestowitz arguments. Thus, he reaches dramatic and likely wrong conclusions. Just like he did when he wrote about Japan back in 1988.

The truth of the matter is that a "catastrophic" type framework sells a lot more books than a more nuanced, and balanced one. But, reality is typically much more complex than such unidirectional lopsided arguments. This is especially true when one attempts to predict complex international competitiveness outcome over the next half a century.

Prestowitz summarizes much of the same material as in Friedman's "The World is Flat" - however, he adds a few additional insights, and is much more concerned about our future than Friedman.

Prestowitz points out that just as our government did not connect the dots leading up to 9/11, it is similarly failing to see what is happening in economics. The Euro has become an alternative to the dollar (first real threat to the dollar in 60+ years), and OPEC and Russia have already shifted their portfolios to reduce exposure to the dollar. If other nations also reduce their dollar holdings, Prestowitz believes that the U.S. standard of living will quickly decline because we do not have the physical capacity to eliminate our trade deficit, and instead will have to cut consumption.

Meanwhile, things are on a path to get worse - the number of foreign students (especially Asians) studying in the U.S. is dropping (partly because of 9/11), U.S. farmers are encountering increasing foreign competition, U.S. manufacturers who have already sent production to Asia are now also sending engineering etc. to bring the functions closer together, and the Asians are achieving economies of scale over the U.S. - further adding to their exisitng low-cost competitive advantage.

Meanwhile, we continue to convince ourselves that "things are going great" by rereading David Ricardo's 1817 "Theory of Free International Trade" and pumping out misleading productivity statistics. Prestowitz points out in the first case that Ricardo's writings took place in a much different era, and that a few leading economists (eg. Baumol, Samuelson, Thurow) have pointed out that the U.S. needs to rethink our trade policies. As for the productivity statistics continually used to forecast a bright future, Prestowitz points out that their meaning is distorted by the results of offshoring and closing older factories in the U.S.

So what do we do? Prestowitz recommends energy independence, encouraging savings by focusing taxes on consumption, balancing the Federal budget, improving education by buildling classroom discipline and encouraging home schooling, and PUTTING SOMEONE IN CHARGE OF IMPROVING AMERICA'S ECONOMIC FUTURE!

A must read for all Americans, starting with our leaders.

Ignore the title of the book, it is not just about Asia, although Asia plays an important role here. This book attempts to do the impossible, that is, it attempts to do an economic analysis of the US economy and then predict the future, especially international trade, trade imbalances, and finances. That is all but impossible to do, but there are clearly some trends which are food for thought and discussion. The book is a 300 page discussion of the problems, the competition in the marketplace, transportation, America's love with the automobile, communications, finance, and then his ideas for solutions. In summary, the world is smaller with faster deliveries of materials and instant communications; globally we might have price deflation for labor but inflation for natural resources; more economies are interconnected and there is less resistance to trade. This is bound to cause changes in our systems of supply and demand, and it follows that there will be permanent changes in our economy.

The author does not present stunning, or radical, or even new ideas. Many of his points have appeared elsewhere in print. It is not a question of connecting the dots to get an economic picture... the trade deficit is huge, and China is on the rise placing new strains on the world's resources, especially oil. Service and manufacturing jobs have moved offshore. That is not speculation. Most of his comments and ideas are sound. I bought the book after a careful inspection since it lays it out all the story in one neat package - 300 pages long, with lots of detail. The book is divided into 12 chapters that cover the costs of goods, the financing, the competition, the dollar as a world currency, express deliveries, high tech, China, India, etc. It is not limited to Asian countries. He has a final chapter - which seems short and a bit weak - on solutions. Overall, the book is written in a chatty informal style. It is not crammed full of statistics or charts and graphs like a Niall Ferguson book.

For years America was financially strong, living within its means, or even with a trade surplus: it was the world's biggest creditor nation. The country could outsource manufacturing, import as much oil as it wanted, and then offset this with exports of food products, jet planes, computer and telecom hardware, tobacco, mining and oil drilling equipment, military hardware, movies, printed matter, etc. It is a free market. Shocklingly, America has become a net food importer with a staggering total monthly trade deficit and there are no signs that it will reverse soon. The US has slipped to become the largest debtor nation, something that we laughed at when it was Brazil or Mexico or elsewhere. This is all compounded by high US consumer spending, inefficient large gas guzzling trucks replacing cars, while being in the indefensible position of being the world leader in greenhouse gas emissions. The author calls this elaborate trade system a "Ponzi Scheme Economy" since it is an unsustainable one way net flow of goods and services into the US in exchange for promissory notes.

To make matters even worse, the US is now losing the education battle, and producing fewer engineers and scientists than places like China. The author quotes MIT president Hockfiled who worries that "we're falling behind in science and engineering". China itself just woke up about 25 years ago from a deep slumber - see China Inc. by Ted Fishman - and it has no place to go but up with its 1.3 billion people. To put things in perspective, the author reminds the reader that until the 19th century China was previously the world's GDP leader. Its economy fell dramatically at that time, but more recently it has jumped from the Great Leap Forward - a disaster by any measure - to manned space flight, high tech universities, cars, and traffic congestion and smog - sound familiar? The situation is not like Singapore that has just a few million people or Japan with 125 million, China has over a billion, about four times the US population. It is already a world leader in steel and concrete consumption and is building a highway system called the "National Expressway" that will eventually dwarf the US Interstate road system. According to a Chinese Government web page, it is already the second biggest road system in the world, so it is not just a lot of talk. Jobs have been transferred to China and India with little hope of returning. The author quotes Andy Grove who fears that even software develoment could become an "endangered species" in America.

Most people know the problems and the solutions, but the inertia to change is large. In Washington, the reality is high federal government spending with nobody about to change. In fact some politicians seem to love deficit spending. Also, we have too much oil consumption, the manufacturing base has shrunk, and there are too many trade imbalances. Nobody has the strength of will or courage or leadership to make the country energy self sufficient or make real changes starting with education. Also, the decline is moving very slowly taking decades, like the proverbial frog in the hot water. It has yet to become a crisis, especially with foreigners investing here to take up the slack, and with OPEC having the ability to increase production - so far.

Good book. 5 stars. Also, if you get a chance take a look at China Inc. by Ted Fishman. That is an excellent and easy to read book on just China and how its economy works.
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This book reminds me of the books written around 1992, which stated that the U.S. needs an "industrial policy" like that of Japan and Germany. Of course, the reality was that those highly government-steered economies faced 10 years of downturn and recession from 1992, while the U.S. boomed. Now we have this new book which states basically the same thing, even though if you look at the list of the most competitive countries, you see the ones without a strong industrial policy at the top (Finland, USA, Holland, Switzerland, New Zealand, Britain, etc.). Japan, far from being a booming economy, has been stuck in stagnation for over 10 years. Germany has become more efficient in spite of, not because of its government. Does the author really believe that the German state makes the German economy more competitive ?? One key point in this book is the idea that state-steered Airbus is beating Boeing, because it has more orders (the book as written in January, 2005). Yet, I was just in Germany this past week (October 2005), and read an article in the German press on how Boeing has more orders, and is overtaking Airbus. So does this now make the author's claims that the Europeans are beating the U.S. in this "key industry" meaningless ? I would suggest, it does. In addition, that same article discussed the cultural conflicts at Airbus (French vs. German managers, etc.). That seems hardly an competitive advantage vis-a-vis Boeing. The truth is that the U.S. got competitive in the 1990s because: a. Wallmart spurred massive savings by its innovations and cost-cutting, which spread throughout the U.S. economy, b. dot.coms located around the private university Stanford thrived, c. the Reagan Revolution had cut government involvement in industry, and freed up the economy. In contrast, Europe has been held down by the German and French interventionist states (the truth is, Europe IS strong, as this book suggests, but it would be much more successful if the state cut costs, taxes, and bureaucracy). The same is true of Japan and China. Mao and the communists prevented the "Chinese boom" in the period 1945-1980. It has only been deregulation and allowing capitalism in that has freed up the Chinese economy. It was not "state planning". This book is basically a rehash of books like Robert Reich's "The Work of Nations" from the early 1990s, which argued that nations compete against each other. Reich's book was largely refuted, and I think this book can be too. The truth is, Germany is not competing with the U.S. and Japan. We have individual companies, funded by international shareholders and funds, operating across the world. The idea of "national industries" is just a dead idea. In science, the U.S. continues to lead the world. I live in Dallas, Texas, and many of the top German and French researchers live in this highly unregulated Texas, even though they could be living and working in the "state-steered" scientific environments of Paris and Munich. There is a reason for that. Indeed the author of this book mentions the 400,000 European technology workers and scientists working in the U.S. My question is, if the "environment" in Europe is so great, why are they here ? Nobel prizes were awarded last week, and there was a two to one ratio of Americans to Europeans. Thus, our "scientific environment" is not so bad in the U.S. I found this book interesting as a thought-provoker, but in reality, I think that most of the theses in the book have been refuted (the exception would be the U.S. dollar, which will fall, as the author states, and the fact that yes, the current U.S. boom is largely funded by individual U.S. consumers going into debt, so it is "debt-funded growth"). But I still think that when we here buy a Lexus, and send dollars to Japan, we get the better deal, because it adds more to my life to drive a nice Lexus around, than it adds to the Japanese lifestyle, to have T-notes in a bank vault in Tokyo. The idea that only exports count, not imports, is a neo-mercantilist idea. If exports over imports equal wealth, why aren't the mineral-exporting African countries rich ? Why are countries like Singapore and Switzerland, which do banking and services, rich ? The author also seems to think that only manufacturing counts, not services. The "Economist" magazine criticized that idea, saying, just because you can "drop the product on your foot" doesn't mean it is a good product. The truth is, manufacturing is not important for a country, and "key industries" also aren't. What counts is productivity. If you have productivity and can sell something that someone will pay for, you can be wealthy. Also, the author doesn't mention that the U.S. economy is 80 % internal. It is an "inner market", so only 20 % of our economy is subject to export-import. Of course, for countries like Japan and Germany, exporting is critical to survival. For the U.S., much less so. That is one reason Americans don't care that much if the dollar falls, whereas the Germans treat the rise and fall of the euro as absolutely life-threatening.

This book is very timely as the conditions of the economies of China, India and the US is on alot of minds these days.
I found the author's ideas interesting and thought provoking but I found them puzzling at times.
1) The author repeatedly states that the rest of the world generates real wealth by producing more than they consume. Why then in his chapter of recommendations does he encourage Europe, Japan and China increase their levels of consumption in order to stimulate their economies(even going as far as recommending a housing boom for Japan!!!)? Exactly what level of consumption to production is required for worldwide growth?
2) The ratio of public debt to GDP is much lower in the US than for Japan. How is this possible when Japan has followed the very recommendations that the author wants the US to adopt. Japan produces more than it consumes, encourages savings over spending, it's government supports and directs economic pursuits and yet Japan imploded a decade ago and is still feeling the after-effects and yet the US economy has steadily grown over that time period.
3) Since the author states that the point of savings is to provide the money for investments which drive economic growth, why does it matter if people bypass a savings account and directly put their money into mutual funds, stocks or any other form of investment? The author repeatedly states that savings in US are near zero but doesn't take the overall effect of investments into account.
4) Since China and Japan have vast dollar holdings, how would they emerge better than the US from a dollar devaluing as the author proposes? Their dollars would then be worthless and the US (The world's consumers) would be unable to purchase their excess production.
5) The author states that the US government is clueless as to what companies and industries are crucial to the growth of the US economy. Yet later, he states that CEOs weild incredible power and influence due to their lobbies. How did the US economy lose so much market share in certain industries when CEOs, who according to the author are more powerful than many national leaders, could easily have influenced the US Government to support their endeavors. The author cites Boeing, US computer and software industry and the failure of the US to develop and produce VCRs decades ago and blames the government's lack of support and funding for their decline/demise.

The message that we got from Thomas Friedman in "The World is Flat" is that we are now - thanks to the internet, digitized work-flow software, and the supply-chaining of Fedex and UPS - on level playing field with billions of new capitalists in China, India, and Eastern Europe. The revised and more pessimistic message that we get from Clyde Prestowitz is that the playing field slightly favors the new capitalists. Why? They are willing to do the same work cheaper and better than their American counterparts. American companies are having to choose between setting up shop on the new frontiers of capitalism or go out of business. Prestowitz is a futurologist whose forecasts of the future have not always been realized ( remember "Trading Places," predicting the dominance of Japan), but I think now he is much closer to the mark. He thinks Americans have become to complacent about their economic superiority. Instead of spending so much time and resources in trying to fix the rest of the world it should start putting its own economic house in order.

The problems that Prestowitz focuses on in this book are a contuation of the same problems dealt with in "Trading Places" with the rise of Japan. The Asians - first the Japanese, and now the Tigers, China, and India - save, produce and export, and we still spend and consume. People were worried in the 1980's when the trade deficit was $50 billion, last year it was $600 billion - $150 billion with China alone. Clyde Prestowitz was concerned then, he is even more so now, and we should be too. Add this to a federal budget deficit of $400 billion, and one can conclude that we are living beyond our means to the tune of a trillion dollars a year. The fact that the dollar is the world's reserve currency has thus far exempted us from acting responsibly. And how are we financing these deficits? The Bank of China and the Bank of Japan are buying t-bills and other financial instruments so that we have more ready cash to buy their products.

The new capitalists produce and America consumes. At present both sides are happy with this arrangement, but, Prestowitz warns that the day of reckoning is coming. This imbalance cannot be sustained indefinitely. The subtitle of this book is "The Great Shift of Wealth and Power to the East." The question that one wants to keep in mind when reading this book is where will America be when the wealth and power has shifted to the East? Will it be impoverished or wealthy like the rest?

Prestowitz has long been dismissed as a promoter of "industrial policy," in which the government sets policies in place that pick "winners and losers." This is nonsense. He is promoting a strategy that takes into account the "export led" economic strategies of our trading partners. People in Washington are not keen on competitiveness strategy, instead they comfort themselves with the notion that the invisible hand deals economic justice in the marketplace. However, our trading partners have strategies and, not surprisingly, they are strategies in which they are the winners and we are losers. As we are playing our heroic role of the being the world's most ravenous consumer lifting billions out of poverty we should also keep our eye on mounting debts and our ability to pay them back.

Prestowitz makes many useful recommendations in this book that are necessary but, politics being what they are, difficult to implement. For example, the tax system should be taxing consumption and not income. This would increase our low savings rate. Instead of consumption more money needs to be invested in education, infrastructure, and wealth-generating projects. It is important that the economic ecosystem of top universities, high-tech infrastructure, venture capital, and manufacturing remains in this country in order to generate the "next big thing." If the ecosytem is weakened, our wealth generating capacity will be seriously impaired and the question of whether we will still be wealthy after the great shift will be answered. I loved this book.

This book thoroughly details how the US is mortgaging its own future in exchange for high living standards, oil, and cheap imported goods without even realizing it. But what's more unsettling is that the US doesn't seem to be taking any steps to change this, even with the spread of outsourcing and our failing education system. Fortunately, the author spells out some suggestions to help the US maintain its presence in a changing world. This is a well-written wake-up call that everyone should read, especially students who are going to be the ones who feel the effects of globalization the most.

Many books are getting published on the current era of globalization and reemergence of Asia as a major economic engine of the world. In my opinion this book looks at this topic from an American perspective and what America needs to do to remain competitive globally as well as to recognize Asia as an opportunity for partnering for growth.

Firstly the book lists the historical outline of global economics in a very clear and crisp summary under each chapter. I was amazed by the clarity and depth of the author's understanding of India's transformational journey from a controlled economy into a vibrant market economy in the 90's. "Made in China" and "Serviced in India" are two chapters that one should not miss in this book.

Secondly the description of the economies on either sides of the Atlantic - America to spend and consume while Western Europe to save and produce - is amazing. The author claims that Europeans were taxed on their consumption while Americans were taxed on their income with incentives for consumption is what has caused the world's biggest economy to end up as the world's biggest debtor.

With Asia, China and India in particular emerging as global economies very fast, the EU, NAFTA and perhaps an Asian Union with an Asian currency appears to become a reality soon.

The book also focuses on the weakening dollar and the global impact of rising oil prices. America is advised to tighten its belt, reduce consumption and conserve energy while from a strategic level should quickly put in place a plan for global competitiveness.

The author strongly defends manufacturing as a core economic activity and America's neglect of this sector is a main reason for losing its competitive edge in research and technical education.

Oil has risen from 30's to 60's since this book was in print. If the author should publish a revised edition of the book , he would further reinforce his views and forecasts of the first edition.

The bottom line is clear. Three billion new capitalists from the east have begun their economic march. Do not ignore them or fight them, but join them to make this planet a better place for all mankind in the twenty-first century.